General Motors Company is currently maneuvering through a complicated marketplace, facing competition from Tesla and BYD, which is affecting its growth and profitability despite a solid brand presence. The firm has made considerable progress in the EV sector, aiming to double its share by 2024, but is encountering obstacles in ICE sales and macroeconomic challenges. GM’s valuation appears low, illustrated by a forward P/E ratio that is below its rivals, positioning it as a stock to “watch” but not one I find particularly attractive. I assess GM stock as a hold due to its strengthening fundamentals and neutral chart stance, but I am inclined to seek better investment alternatives.
Historically, General Motors Company (NYSE: GM) has been a conventional player in its industry, yet it is undergoing a challenging phase. Given the uncertainties involved in transitioning to self-driving vehicles and EVs, alongside the hefty costs amid intense competition, GM’s stock is currently trading at low multiples. Previously, from 2016 to 2019, this stock often appeared on my stock screeners, characterized by an above-average dividend yield and trading at a significant discount compared to market multiples.
However, since that time, GM has effectively rebranded itself, yet the automotive market has grown increasingly intricate. Rivals like Tesla (TSLA) and BYD Company (OTCPK:BYDDF) have transformed the industry, enhancing efficiency, quality, and EV penetration. Traditional automakers now confront numerous pressures related to competition, consumer preferences, and macroeconomic influences, as this market heavily relies on households’ disposable income for vehicle purchases.
At present, GM remains a profitable entity in its sector but is not exhibiting growth. Its dividend is no longer a strong point, with only a post-COVID return to dividend payments being noteworthy.
Despite a somewhat blemished reputation and a well-publicized cycle of decline and recovery over the last 15 years, General Motors is managing to navigate the terrain relatively effectively. It remains one of the leading brands in North America, recognized for SUVs, and has successfully expanded its EV portfolio in 2024. As highlighted in its earnings call, GM successfully doubled its EV market share by 2024, leveraging production scale. The company has also completed the full acquisition of Cruise, reflecting its commitment to long-term trends in the sector.
Nonetheless, some challenges are anticipated for 2025, including a “modest decline” in ICE wholesale volumes in North America due to current inventory levels, which will inevitably influence performance expectations. However, guidance remains reasonable, anticipating an adjusted EPS within the range of $11 to $12, translating to a year-over-year growth between 4% and 13%, with market expectations landing in the midpoint of this range.
This relatively broad outlook highlights the complexities involved. Projecting GM’s future is challenging; despite its rich heritage in North America and well-established operations, various factors and trends will affect its business in the forthcoming quarters and decades. Long-term trends will play a crucial role in the sustainability of the business, including competition and GM’s ability to adapt to the EV market. However, short-term concerns are also present.
GM stands to be one of the most impacted automakers by tariffs, as a significant portion of its manufacturing is based overseas. Thus, while it holds the potential to benefit domestically from reduced competitiveness against Chinese manufacturers and others, it could also suffer greatly from tariffs.
The transition to electric vehicles and technology-driven automobiles is expected to continue growing. Nevertheless, this challenge requires GM to engage in substantial investments and efforts to capture market shares. The costs associated with maintaining competitiveness will be considerable. Currently, GM is capitalizing on these trends, and I believe it can continue to hold relevance as a major automaker due to its scale, investments, and brand strength. However, envisioning a scenario wherein it retains a sustained leadership position is daunting. In China, for instance, the company has already forfeited considerable market share to domestic producers, showcasing the emergence of aggressive competitors, partly owing to incentive structures.
The shift to EVs will be influenced by numerous factors, including brand positioning; for instance, while GM may come to mind for SUVs, Tesla dominates the EV conversation. GM has also encountered difficulties in producing certain components, such as Ultium batteries, although the company has claimed these challenges are now largely resolved, illustrating the persistent complexities along the path to electrification.
Nevertheless, amid this challenging context, GM’s fundamentals remain relatively stable. Although gross margin and free cash flow margins have decreased compared to the 2021-2022 timeframe, they hover around acceptable levels. This suggests that if the company navigates its short-term challenges and effectively manages transition expenses, it has the potential for improved margins and increased shareholder value.
While I don’t particularly favor the automobile sector enough to invest in General Motors, it’s worth noting that despite its historical issues, the company is currently performing reasonably well given the circumstances. However, the ambiguous outlook poses a concern. That said, GM’s attractive valuation softens these dim prospects; its forward P/E ratio stands at about 4.2x, contrasting with traditional automakers like Toyota (TM) and Ford (F), which trade at 7-9x.
This implies that, should GM distribute its entire net income, the dividend yield would surpass 20%. With forecasts for 2025 estimating an EPS of $11–$12, a hypothetical $11 dividend per share would yield over 22%. While actual dividend payouts are notably lower, even a distribution of just 5%-10% of EPS would result in a dividend yield ranging from 1%-2%.
One could argue that GM is a classic case of “being paid to watch” during its turnaround efforts. However, I’m reluctant to pursue it for several reasons. Firstly, while technicals may appear decent in the short term, long-term projections remain uncertain. Thus, this could represent a potential trade for me, but no commitments for now. Furthermore, I observe numerous superior investment options, as detailed in many of my articles on this platform.
Thus, while this assessment reflects a broad understanding, a smoothed P/E ratio at the lower end of GM’s 10-year range is insufficient for me to invest substantially.
I choose to pass on GM for the time being, rating it as a hold since I cannot classify it as a sell, considering its improvements despite ongoing challenges and its neutral chart position.